Purchasing in Spain

 

COSTS, CONTRACTS, LEGAL ISSUES AND PURCHASING A PROPERTY IN SPAIN

We feel it is very important for purchaser to fully understand the whole process of purchasing a property in Spain and its implications, so we have prepared this guide to explain the whole process, the costs, legal implications and to explain some of the terminology used.

 

THE PROCESS

The basic process is the following;

1-The Initial Reservation Document & Holding Deposit

    A reserve document to reserve the property (normally with a reserve of 3.000 to 6.000€)

 

2-The Purchase Contract

    A full purchase contract on which you normally pay 10% of the purchase price.

 

3-The Deeds and The Notary

    The signing of the deeds is done in front of a Notary and is when you pay the rest of the price of the property.

 

1-The Initial Reservation Document & Holding Deposit

This document serves to give your details, make an offer if relevant and removes the property from sale reserving it in your name and requires that you pay a holding deposit to reserve the property. The holding deposit is usually between 3,000 and 6,000 € and counts towards the final price of the property. This is normally valid for 10 days and within this period you proceed to a full PURCHASE CONTRACT. If you have made an offer and the seller does not accept your offer, the holding deposit is returned in full. If the seller accepts your offer and you decide not to go ahead you lose your deposit.

There are two main reasons we ask you to sign a reservation when buying, one, it secures the property for the purchaser whilst the contract is prepared and two, it assures the seller that the buyer is serious, and he can take the property off the market whilst the contract is prepared. 

A lot of people say that estate agents want to turn the momentum and enthusiasm of your visit into a commitment as quickly as possible working on the theory that if you go home having signed an Initial Reservation Document and paid a deposit you are more likely to proceed with the purchase than if you go home having seen a property that you plan to buy, but without having made any commitment. The deposit paid makes a change of mind costlier, so fewer people change their mind if they have paid a deposit.

However, if you are dealing with a reputable company you should feel no pressure at all to sign an Initial Reservation Document and only do so if you are completely happy with the purchase. A reservation contract should not be designed to “trap” the purchaser into buying but to be a useful instrument to assure that all parties have real interest.

If you are completely happy with the purchase and want to take a property off the market, then you can sign the Initial Reservation Document, BUT, remember this is not “sign a bit of paper and think about it”, this is “think about it properly” and then sign.

 

2-The Purchase Contract

This contract requires that you pay (normally) 10% of the agreed price when the contract is signed. If you fail to go through with the purchase having signed the PURCHASE CONTRACT you will lose all of your deposit to the vendor, however if the vendor backs out before signing the deeds then the vendor will have to pay you back double the deposit (Art. 1454 of the Spanish Civil Code). This contract makes it expensive for either side to back out, but at the same time it does leave the door open should either side wish to do so.

You should only sign a PURCHASE CONTRACT once your solicitor has done the necessary due diligence and given the all clear.

 

Putting in a lower amount on the deed to pay less taxes. This is a practise that has gone on for years, the full amount you have agreed to pay the vendor will be stated in the contract but a lower amount is stated in the deeds the rest being paid "under the table" in cash, a practise we do not recommend but needs explaining as many people know about it. Basically, it is done to pay the 8% “stamp duty” or transmission tax on a lower figure hence making a saving on buying costs.

The government are wise to this and now value your property based on its rateable value hence rendering private agreements of this kind invalid for the purchaser as his purchase taxes will not be based upon the purchase price paid but on the Taxable Value (see below). Once again, we must state that we do not recommend this practise.

However, on properties that are furnished there is the possibility to reduce taxes by declaring in the deeds that part of the funds are for the property and part are for the furniture and fittings which pay tax at a lower rate. The viability of this would depend on the Taxable Value of the property and in no case would there be cash involved.

What is the Taxable Value? This value is based on the Rateable Value of a property multiplied by a factor, these are set values, they do not “make them up”.

Our main business is “distressed” or bank sales, many being for the cancelation of debt, and their value is quite often considerably less than the Taxable Value. Yes, you go to the notary, sign the deeds, pay the 8% on the price you paid but, some weeks or months later, you will get a letter from the taxman saying that they think your property is worth more based on the figures they have and that you owe them the 8% tax on the difference. You can recur against it, but, at best, all you can hope for is to stall the payment. We always advise you of the Taxable Value prior to sale as we do not want you having a nasty surprise and it is our strong advice to pay the tax on the Taxable Value not on the Purchase Price.

PLEASE NOTE. If the property is new and has never been transmitted before (that is to say you are the first person to purchase the property) then you have to pay 10% IVA (VAT) plus 1.5% “stamp duty” tax. This is not affected by the Taxable Value syndrome as per the re-sale properties.

Lastly, whenever you sign any document that involves making a payment, the payment method should be clearly noted in the document you sign. We recommend all payments to be made via bank transfer from your own account, that way there is never any ambiguity about payment or where the funds came from.

All contracts should provide unambiguous details on the following;

  • The buyer
  • The vendor
  • The property
  • The price agreed
  • The deadline for signing the deeds
  • Vacant possession
  • Debt-free title
  • How the transaction costs will be paid
  • Clauses that allocate responsibilities
  • Conditional clauses that need to be met for the contract to be valid
  • How disputes will be resolved

All contracts should be in Spanish (we are in Spain and subject to Spanish law) and in your native language or a least one you understand fully and are happy to sign in.

 

3-The Deeds and The Notary

Deeds are signed in front of the notary. His role is to guarantee the legality of the sale certifying the presence of all the papers and people required by law to be present in any property deal and that the property is transmitted free from debt and incumbrances. In the UK the legal responsibility of the sale falls upon the solicitors whilst here it falls upon the notary.

So why do I need a solicitor?

Whilst it is the notary who guarantees the legality of the sale and does the “search” to make sure that there are no debts etc on the property you need a solicitor for various reasons;

The estate agent submits the “nota simple” (a simplified version of the deeds from the registry office which shows all relevant legal information and any encumbrances on the property) to the solicitor who checks the validity of the documents and them submits them to the notary. The notary will obtain another of these documents on the day of sale to confirm the continuity of the document.

The estate agent submits the service bills, rates bill etc to the solicitor who checks the validity of the documents and them submits them to the notary.

The solicitor will obtain your NIE for you. (a Spanish fiscal number, see below for an explanation) You can do this yourself, but it does require more than one visit to government offices with all the complications that that implies.

The solicitor will translate the deeds for you on the day of signing, the notary will formally ask the solicitor if he or she has translated the deeds for you and will ask you if you are in agreement to sign. Your solicitor will appear in the deed as the person that legally translated the deeds for you.

Normally within 3 to 5 days the deeds will be ready to collect from the notary (you will have been presented with an official copy know as a “copia simple” on the day of the signing). The solicitor will collect them and take them to the tax office to pay the purchase taxes for which there are 30 days from the date of the signing.

After a few weeks the deeds will be available to be collected from the tax office and your solicitor will take them to the registry office for the final registry.

Again after a few weeks the registry office will contact your solicitor and he can pay the registry fees and collect the deeds for you.

The solicitor will also either, connect the services for you if it is a new property, or change them over to your name if it is not, and organise direct debit payments for you.

Obviously, you will need to pay on-going taxes (rates etc) on the property, so your solicitor will change them over to your name and organise direct debit payments for you. The same will be done on community charges if applicable on the property.

You also need to pay a yearly property owners’ tax which again your solicitor can do for you. (This does not normally enter in the fees you pay to the solicitor for the purchase.)

Legally you can do all these things yourself and save the cost of a solicitor, in the end it is really the notary who legally protects the purchase and in fact local Spanish never use a solicitor to purchase property, that is what the notary is for.

However, ask yourself this; Do I speak fluent Spanish? Do I fully understand the Spanish purchase and tax systems? Do I really want the hassle of going to the notary to take all of the paperwork in, going again to sign the deeds, again to collect them, then take them to the tax office to pay the taxes (two visits minimum) then pick them up, then take them to the registry office, then pick them up again, organise water and electricity connections and payments, organise changing rates and setting up payments, then sitting at home wondering if you have done it all correctly. We think it is money well spent and indeed our company policy is that we will not sell you a property without a solicitor unless we are confident that you are completely “au fait” with the Spanish system and language.

If you do not have contact with any solicitors, here are a few local solicitors we have found to be very good.

Gecko Services, headed by Mr. Lucas Mayo offer their services on the purchase and a series of on-going financial, tax and general legal services aimed at the expatriates. Mr Mayo is half English; half Spanish so he can sail through both worlds with great ease. He is also a local councillor.

  • Contact details; Gecko Services, Paseo del Mediterráneo 46, 04638, Mojácar, Almeria.
  • Teléfono 950 475949
  • E-mail: lucas@geckolegal.com

 

Alonso & Garrido Abogados, headed by Mr. Francisco Alonso, extremely professional, an ex-judge who is a renowned solicitor at a national level being one of the top legal people in property law and its application. Mr. Alonso speaks good English and one of his assistants is fluent in French.

 

M. Mercedes Flores Mirón Abogados Headed by Mercedes Flores, offer their services on the purchase and a series of on-going financial, tax and general legal services aimed at the expatriates. They speak English and they are very professional.

  • Contact details; M. Mercedes Flores Mirón Abogados, C/ Duque de ahumada, 3 Bajo 04800, Albox, Almería.
  • Tel: 950120553
  • mercedesflores@telefonica.net

 

Mario Redondo Abogado offers his services on the purchase and a series of on-going financial, tax and general legal services aimed at the expatriates. He speaks English, and very professional.

  • Contact details; Mario Redondo Abogado, Calle Andalucia 25, 04880, Albox, Almeria.
  • Tel: 950 430222
  • E-mail: mariosolicitor@gmail.com

 

Saugar Abogados headed by Alfredo Saugar Saugar, offer their services on the purchase and a series of on-going financial, tax and general legal services aimed at the expatriates. They speak good English, German and Dutch and again they are very professional.

 

Lex Consulting Abogados & Economistas, headed by Linda de Rijck, offer their services on the purchase and a series of on-going financial, tax and general legal services aimed at the expatriates. She speaks good Dutch, French, German and English and they are very professional.

  • Contact details;Lex Consulting Abogados & Economistas, Calle Mojigato nº 1, 04620, Vera, Almeria.
  • Tel: 950 390995
  • E-mail: linda@lexconsulting.es

 

Costs will normally be between 1.200€ and 1.500€, however we recommend that you confirm this in writing with the solicitor as individual cases can vary.

 

What is a NIE?

The NIE (Numero Identidad Extranjeros) is a personal, individual, and unique identification number required for all foreigners in Spain who for economic, social or professional reasons need to deal with the Spanish administration or authorities. Regardless of whether you plan to live in Spain permanently or not you do need to obtain a NIE number to purchase a property. It is possible to request a NIE Number in Spain by appointing a representative. ie your solicitor, by means of a Power of Attorney without the need for the applicant to come to Spain. The Directive 3/12 dated April 13/2012 re-enables the application for NIE through a representative by means of a Power of Attorney expressly stating that it empowers him to apply for the NIE. It can also be done at the Spanish embassy in your home country.

 

Power of Attorney

You give power of attorney to your solicitor for him to be able to represent you in the purchase of your property. This enables him to be able to obtain your NIE, open a bank account in your name for the transfer of funds to purchase the property (Spanish law requires all payments to be done from the purchasers account and having one in Spain reduces the Money Laundering Law regulations making the whole process less complicated) and finally sign the deeds for if you are not here and translate them for you if you are. This power of attorney can be done whilst here in Spain or indeed at a notary in your own country in which case it must be officially translated to Spanish and have The Hague Stamp to say so.

 

Buying Costs

As a rule of thumb people say 10%, however this is not always the case therefore you must have all the costs very clearly stated prior to purchasing. If it is a new property, then the purchase taxes alone add up to 11.5% without taking into account the other costs. The percentage can vary given that some of the costs are, more or less, fixed whilst others are a direct percentage of the purchase price, hence if the purchase price is low, the fixed costs push the overall percentage cost up.

Resale Property Example;

  • Transmission tax 8% of the purchase price (or of the taxable value)
  • Notary fees of normally 600€ to 800€
  • Registry fees of normally 300€ to 500€
  • Solicitors fees, normally around 1.200€ to 1.500€+IVA
  • Admin fees (if applicable), normally around 3.000€ + IVA

 

Newbuild Property ExampleIf it is a new property the "Taxable Value"  is not applicable to the tax to be paid, only the actual purchase price.

  • IVA at 10% of the purchase price
  • The IAJD tax (Stamp Duty) at 1.5% of the purchase price
  • Notary fees of normally 600€ to 800€
  • Registry fees of normally 300€ to 500€
  • Solicitors fees, normally around 1.200€ to 1.500€+IVA
  • Admin fees (if applicable), normally around 3.000€ + IVA

 

All in all, we prefer to say allow 12 to 15% of the purchase price as a basic rule of thumb, but as said this can vary depending on the property. We can give you accurate figures on any property prior to any purchase.

 

RUNNING COSTS

The basic running costs on a property are;

The IBI (rates).

Which obviously vary depending on the property, but even so, they are considerably less than in the UK and most Northern European countries. For example, an average 2-bed apartment on the coast can cost around 250€ a year.

 

The “Basura” tax (a rubbish collection tax).

About 35€ every 3 months.

 

Community Fees.

These again obviously varies depending on the property. This fee is to pay for the cost of running the urbanisation, so if your property is not on an urbanisation they do not apply. If the property is in a block of flats with no pool they tend to come out at 30€ or less. If the urbanisation has pools and gardens, then more in the region of 50 to 70€ a month. Properties on golf complex urbanisations tend to cost a little more as there is the added cost for the golf complex its self. Again, we can give you accurate figures on any property prior to purchase.

 

Annual Property Ownership Tax

Non-resident tax is the catastral value x 1.1% then x 19% or 24% depending on place of residence of the owner = EU resident 19%, non-EU resident 24%. You can basically say at approx. 0.2% of the catastral value.

Solicitors fees for handling this tax are normally in the region of 35€ euros for each return, so 2 owners = 70 euros year, the tax has to be paid before the end of the following year, e.g. 2016 purchase will have paid non-resident tax end of 2017, 2017 purchase will pay end of 2018. If the property is rented you will be subject to tax on the net rental income. When you rent you do not pay the non-resident tax for this period of time; e.g. If you declare rentals for all of August = non-resident tax for 11 months + rental tax declaration for the August income. Rental declarations are trimestral. We highly recommend that clients ask their solicitor if they can do this for them as it will not happen automatically. Also, not all solicitors handle this tax side.

To these costs you have to add your water and electricity bills which depend on use. All in all, annual property ownership costs are considerably less than in the UK and most northern European countries.

 

OBTAINING A MORTGAGE

The documents typically required by a bank are:

  • Your NIE number. (You must get apply for a NIE number before you can buy a property in Spain).
  • Your contract of employment.
  • Your last 3 payslips.
  • Your latest income tax return.
  • Your pre-agreement with the seller.
  • Proof that the property tax (IBI) on the house is paid up.
  • Details of other mortgages or loans that you may have.
  • All property deeds, both in Spain and overseas.
  • Certificate from work authorities, showing your past work history.
  • Records of your current assets (bank/mutual fund statements, etc.).
  • Prenuptial agreements, if any.
  • If self-employed: Local tax on economic activities (IAE)
  • If self-employed: Records of your assets during the last two years
  • If self-employed: VAT tax you paid for the last quarter and last year

 

What are the main types of mortgage in Spain?

The vast majority are variable-rate mortgages, though you can also find fixed-rate and interest-only mortgages. In a variable-rate mortgage, repayments vary according to the Euribor, the base rate set by the European Central Bank. A typical bank offer might be "Euribor + .41%, with no opening fee, no cancellation fee, and a first-year fixed rate of 3.50%. 

 

How much can I borrow?

The lenders will decide this after reviewing your personal and financial profile. In general, Spanish mortgage lenders give 60%-70% of the value of the property to foreign buyers of Spanish property. However, you may be able to find lenders offering up to 80%. 

 

Are there additional costs when obtaining a Spanish mortgage?

Yes, these can be summarised as follows:

  • Property Valuation Fee: Before granting a mortgage, a Spanish lender will require the property to be valued by one of their own appointed appraisers. The buyer is responsible for this upfront fee.
  • Mortgage Opening Fee: Many lenders charge a fixed fee of around 1% for setting up the mortgage.
  • Mortgage Insurance: It is a legal requirement of Spanish mortgages that you obtain general house and contents insurance. Depending on your circumstances, you might also consider life and mortgage insurance.
  • Mortgage Early Cancellation Fee: Buyers should be aware of this as it varies between lenders.
  • Mortgage Notary Fee: If a Spanish house is to have a mortgage registered against it, this must be declared before a Notary. The Notary will charge for this.
  • Spanish Stamp Duty: (known as AJD) is a tax on mortgages which is paid to the government. It is calculated as a percentage of the mortgage.
  • Deed Arrangement Fee: The lender employs a gestor to arrange for the deeds to be correctly registered at the Land Registry. The buyer is responsible for the gestor's fee.
  • Land Registry Fee: Following completion the buyer will incur the land registry fee for completing the Registration.

The buyer should consider the above carefully when budgeting to purchase a property. The buyer should make sure they can get approved for a mortgage before signing a full contract on the property. Since 2007, banks are much more stringent as to who they will approve, especially to a foreigner without a regular payslip.

Logically as we are bank agents we have good access to mortgages, however as the whole morgage process can be complicated and rates and conditions change and vary we will not quote you for mortgages and instead will will pass you over to one of our experts.

 

 

 

THE THREE GOLDEN RULES

 

With almost 30 years’ experience in selling here in Spain we have come up with 3 Golden Rules for purchasers

 

1.   IF AN AGENT ASKS YOU TO SIGN A CONTRACT ONLY IN SPANISH, DO NOT BUY

2.   IF AN AGENT ASKS YOU FOR A DEPOSIT IN CASH, DO NOT BUY

3.   IF AN AGENT TELLS YOU THAT YOU DO NOT NEED A SOLICITOR, DO NOT BUY

 

We hope this short guide has help you understand the purchase process and its implications. If you have any questions on any of this, please contact us.

 

The Indalocasas Team